Runaway capitalisation
It was, overall, a good year for the Egyptian capital market. Indices hit all time highs and market capitalisation reached LE224 billion. The Telecom sector, which includes market heavyweights such as Orascom Telecom Holding (OTH), MobiNil and Vodafone, was the year's star, and OTH far and away the best performer.
OTH's market capitalisation jumped from LE19.11 billion to LE27.6 billion in 2004. There was a 224 per cent increase in its share prices, which ended the year at LE250. The company's regional expansion plans started to bear fruits: its subscriber base in the nine countries in which it currently operates reached 11,339 million.
OTH began the year by off-loading its controlling 51.7 per cent stake in Ivory Coast's leading GSM service business, Telecel Loteny, for $45 million. This was followed by the company suspending its operation in Chad as a result of an unresolved dispute with the local authorities . As a result OTH now has only three sub-Saharan GSM mobile service operations, in Congo Brazzaville, the Democratic Republic of Congo and Zimbabwe.
The company consolidated its Asian presence by acquiring the shares of Bangladesh's Sheba Telecom and related operation rights and services for $50 million in cash, and has re-paid roughly $10 million in financial debt. Company sources say the Bangladeshi market, with the world's eighth largest population, is very promising. OTH also renewed the licence of its Mobilink-branded Pakistani GSM subsidiary for an additional 15 years, starting in 2007, and launched GSM services in the Southern region of Iraq after Orascom Telecom Iraq (OTI) fulfilled all conditions of its 12 month licence. OTI has become the first operator to deploy its services across the whole of Iraq and OTH ended the year by asserting that it had no intention of leaving the country despite the deteriorating security situation.
OTH also began moves to tap into the bonds market. It issued bonds worth LE700 million and $150 million at the end of December to re-finance existing bank debt and to strengthen financial flexibility. OTH's sister company, MobiNil, succeeded in pushing its capitalisation to LE12.5 billion compared to LE5.1 in 2003.
Another member of the Sawiris group, Orascom Construction Industries (OCI), was a popular stock. OCI joined the handful of Egyptian companies traded as global depository receipts (GDRs) on the London Stock Exchange. OCI continued to win contracts overseas in line with an international expansion strategy that aims to generate 50 per cent of revenue in foreign currency by 2005. OCI's majority owned Contrack International became the first major US company to withdraw from Iraq because of rising violence. It has, however, won a $63.9 million US Army building deal in Afghanistan.
Other companies looked towards regional markets. Egyptian Media Production City secured approval to be listed on the Dubai stock exchange in January though it has yet to act. Capitalisation of the company almost doubled to reach LE2.26 billion. Commercial International Bank, Egypt's largest private bank, was listed on both the Kuwait and Dubai stock exchanges. CIB became the first foreign company to be listed on the Dubai Financial Market (DFM). While this does not entail a capital increase it does open the door for Egyptian companies seeking multi-listings in other Arab markets..
Two weeks after announcing its acceptance on the stock exchange CIB declared that the Central Bank of the United Arab Emirates had granted it a licence to open a representative office in the UAE. CIB became the market's sixth biggest listed company with market capitalisation approaching LE5 billion.
The banking sector witnessed the onset of major changes with the announcement of an overhaul based on merging smaller banks and the government's decision not to extend the deadline for banks to increase their capital.
Sharp increases in international prices of both steel and cement gave both sectors' shares a boost. Local steel prices rose by almost LE500 a ton to reach LE3,300, double last year's price. The positive impact was reinforced by the decision to reduce customs tariffs on steel and billets from 20 per cent to five per cent, encouraging investors to stock up on shares in anticipation of a profitable financial year. Al-Ezz for Steel Rebars posted better than expected results for fiscal year 2004 despite the controversy surrounding monopoly charges levelled at the company's owner, Ahmed Ezz.
Cement companies also fared well. A surge in demand for building materials from China was accompanied by rising international cement prices, prompting investors to snap up cement shares.
Suez cement was one of the market's big caps, with capitalisation reaching LE5.1 billion during the year. The company attracted a lot of attention towards the end of the year after Ciments Français offered to purchase the 65.9 per cent of Suez Cement that it does not already own for $540 million. The offer would have represented the biggest privatisation operation in Egypt for a long time.
Eastern Companies and Lecico also made headlines, the first as a candidate for privatisation, the second because it plans to register its shares in London.
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